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Oversold China stocks for Feb. 25

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watch_5 February 25, 2011 (Chinavestor) Ata Inc. (NASDAQ:ATAI) managed to add more to previous gains but became overbought. Downside risk now exceeds upside potential for the stock. But most of the action took place on the oversold end of the China stock universe.

Stocks with a chance of a turnaround include Longtop Financial Technologies Limited (NYSE:LFT), E-House Holdings (NYSE:EJ), Guangshen Railway Co. (NYSE:GSH), and New Oriental Education & Tech. Group Inc (NYSE:EDU)  among NYSE listed Chinese ADRs. ChinaEdu Corp. (NASDAQ:CEDU), China Automotive Systems (NASDAQ:CAAS), Origin Agritech (NASDAQ:SEED) and Shanda Games (NASDAQ:GAME) are considered oversold to a different degree, a development investors want to follow closely. Better than expected earnings, sound outlook and analyst upgrade helped Ata Inc. (NASDAQ:ATAI) stay above the rest for the week. But the rally sent shares of the company out the roof, suggesting upside is getting limited for this overbought China stock.

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The oversold monitor is full of action for Friday.  Longtop Financial Technologies Limited (NYSE:LFT) and E-House Holdings (NYSE:EJ) are closest to theoretical lows, a position considered oversold. But it's Guangshen Railway Co. (NYSE:GSH), a large cap rail company operating in China's economic heartland, that raises eyebrows the most. The stock is oversold and is ready to bounce back, according to the oversold monitor.

Education stock took a beating for the week but that may change, according to the chart below.  New Oriental Education & Tech. Group Inc (NYSE:EDU)  and ChinaEdu Corp. (NASDAQ:CEDU) suffered heavily and the bottom may be near.

China Automotive Systems (NASDAQ:CAAS) has been trading below the normal trading range for some time. Origin Agritech (NASDAQ:SEED) and Shanda Games (NASDAQ:GAME) lost significant momentum for the week, making these companies a prime target for swing traders.

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Overbought A technical condition that occurs when prices are considered too high and susceptible to a decline. Overbought conditions can be classified by analyzing the chart pattern or with indicators such as the one above. A sharp advance from $15 to $30 in 2 weeks might lead a technician to believe that a security is overbought. Or, a security is sometimes considered overbought when the stock is trading out of its trading envelope and is approaching the theoretical high. It is important to keep in mind that overbought is not necessarily the same as being bearish. It merely infers that the stock has risen too far too fast and might be due for a pullback.

Oversold A technical condition that occurs when prices are considered too low and ripe for a rally. Oversold conditions can be classified by analyzing the chart pattern or with indicators such as the one above. A sharp decline from $30 to $15 in 2 weeks might lead a technician to believe that a security is oversold. Or, a security is sometimes considered oversold when the stock is trading below its trading envelope and is approaching theoretical lows. It is important to keep in mind that oversold is not necessarily the same as being bullish. It merely infers that the security has fallen too far too fast and may be due for a reaction rally.



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